Hello Boys and Girls,
A trade idea i wanted to get out there, to discuss and evaluate.
The basic position is Long Gold/Short Yen.
Now, to break it up:
1) Long gold : this is basically an inflation hedge, which is where it seems we are going eventually, with Helicopter Ben at the printing press and an ever expanding goverment (U.S) debt which is unlikely to be ever repaid, hence the only politically viable solution would be to print print print again.
2) If we are looking to take a long Gold position, we need to decide on the other half of the trade, sure, US Govt Debt is bad, but Japan is in much much worse state. At 200+ pct of GDP we are in Zimbabwe territory, it's only a question of time, and for those who pay attention BOJ already owns 8% of the Govt debt, which is to say, they are already self financing and no way out. I've read somewhere they put adverts for govt bonds in taxis now, seems like a move of desperation...
Now, there is another benefit of pricing gold in Yen. In USD terms, gold has gone up from 300 to 1500 so a factor of 5, in jpy terms it went from 5000 to 15000 jpy/oz, which is only a factor of 3. So essentially you are getting a 40% discount when priced in Yen. Why you might ask, well my theory is that there are huge ammounts of cash in the system and due to EU situation, the usual fear trades are: long usd, long jpy, long chf, long bonds. Well, CHF said, enough is enough and traders got screwed, hence there is one less instrument to buy, this is part 1. Part 2, is repatriation flows after the Fukushima. So basically, this makes Yen way way overvalued.
Overvalued Yen, eventual economic mayhem (either from Japan, or US, or EU or elsewhere, does not really matter where it starts, Japan is the weak link which will snap under the pressure in either case, the catalyst could be internal or external, the result will be the same) Gold as safe haven and there you go...
A trade of the decade!
(an alternative could be silver/jen or a mix of the two depending on your preference)
Let me know what you think, and if you see any flaws in my reasoning, especially if you see flaws in my reasoning.